The process of purchasing a residential property can seem complicated. When you’re buying from out of state or even out the country, gathering the right information can be a chore. The tax code is certainly not the same from place to place, or easy to figure out on your own. If you’re looking to purchase property in Miami, you’ll be benefitting from some excellent tax relief, but you’ll be subject to other tax drains you should know about. Read on to learn the Miami real estate property tax rates, tax abatements, and tax drains.
Property Tax Rates
Property tax is typically calculated by local governments and represents a percentage of the assessed value of any property you own in the United States. This percentage varies from state to state and in some states, residents will pay much less on property taxes than others. This depends on the percentage instituted by that state government and on property values. When comparing places, Miami’s property tax is relatively high. While residents of New York will only pay 0.75% per month, residents of Miami will pay 2%. However, this is because Miami has no income tax and the government needs to fund its coffers somehow.
Miami Tax Abatements
Residents of Florida have an excellent tax opportunity under the Homestead Exemption Act. Once residency has been established, you’ll receive a $25,000 exemption for your primary residence. Although you’ll still have to pay property taxes, the value is reduced by this $25,000 credit before the property tax is calculated. There is also potential for another $25,000 exemption for school-related taxes, depending upon the property value. While the Homestead Exemption amount may seem immaterial, the real benefit of the Homestead Exemption Act is that it significantly limits property tax increases for residents to 3% or the change in the CPI, whichever is lower, potentially significant savings. Non-Homestead exempt increases are limited to 10%, so the Homestead can save a homeowner a lot of money.
Capital Gains Tax
Capital gains is the difference between the purchase price of your home and the selling price should you decide to sell (less closing costs of both purchasing and selling). Florida does not impose a state capital gains tax, so a seller would be responsible for only the Federal portion of the capital gains tax, which could be up to 23.6% if the capital gain is greater than $250,000. However, if the property is one’s primary residence, there is an exemption of $500,000 for joint filers or $250,000 for single filers when selling a primary home as long as the homeowner has lived in the residence for two of the past five years
Capital Gains Tax Deferral
Fortunately, there is a loophole for investors to avoid paying capital gains taxes on the sale of property. If sellers transfer the money from that initial sale into the purchase of another investment property, according to the 1031 exchange section of the tax code, they’ll be able to avoid capital gains tax. However, the rules to this process are stringent and the property must adhere to the “in-kind” purchase guideline.
Paying your Taxes
Real estate taxes are collected in Miami on an annual basis by the Tax Collector’s Office. Notices are mailed before November 1st of each year as tax year runs from January through December. There are tax discounts if your taxes are paid in a timely manner. Those who pay in November can deduct 4%, with this number decreasing a percent each month, until the last opportunity for a 1% discount in February.
Tax information is always changing, which is why we provide resources like this for your perusal (as well as to brush up our own knowledge). At Manhattan Miami, our goal is to make purchasing a home or property as simple and clear as possible. Contact us today and let us serve your real estate needs.
If you are considering making the move to Miami, be sure to check out our Home Buying Guide.